There are two types of escrow:
– Loan-origination escrow: This happens when a third party, like a title company or attorney, holds a nonrefundable earnest-money deposit for you during the homebuying process. Once the sale goes through, that money goes toward your down payment. 💸
– Loan-servicing escrow: This is a long-term account your loan servicer maintains for you throughout the life of your mortgage loan. Each time you make a monthly mortgage payment, a portion is added to your escrow account to cover property taxes and homeowners’ insurance. This is the type of escrow discussed in this article.
You “deposit” money into your escrow account each month when paying your mortgage. Your loan servicer holds that money for you and withdraws it to pay for property taxes and homeowners insurance when due.
In some states, additional property-related costs like HOA fees or private mortgage insurance (PMI) may also be paid from your escrow. Check your mortgage contract for specifics.
An escrow account keeps you from worrying about budgeting for large tax or insurance bills. Instead, those expenses are split into manageable monthly chunks. This way, you won’t miss a payment or pay late—your loan servicer has it covered. ✅
Nope! Your tax office and insurance provider send your loan servicer the bills directly. If anything is needed, you’ll get a notification by mail. 📪
Your loan servicer keeps a “cushion” of up to two escrow payments to help cover unexpected increases. If your escrow surplus exceeds $50 beyond this cushion, the law requires a refund. You’ll receive a check along with your annual escrow analysis letter. 📨
Taxes and insurance costs change. So, at least once a year, your loan servicer reviews your escrow account to determine if your monthly payment needs to change.
Your tax and insurance bills are compared to the escrow balance. If there’s a shortfall, your payment increases. If costs drop, your payment could decrease. 🎯
After the analysis, you’ll receive an email with a personalized video and a detailed letter 10 days later.
– Tax or insurance changes: Most common reason.
– Adjustable-rate mortgage (ARM): Payment may change due to a recalculated interest rate.
– Property tax or insurance increases
– Changes in due dates
– Lower than expected deposits
– Higher than expected payouts
It depends on how you pay:
– Autodraft: No action needed.
– Online bill pay: Update the amount.
– Check/money order: Send the new amount, ensuring it arrives by 3 p.m. ET on the due date.
Mistakes are rare, but if something seems off, contact your loan servicer through your account dashboard chat.
🔍 Tips:
– Monitor tax and insurance due dates
– Learn about your local tax rules
– View escrow statements online anytime
Not usually. Many loans require escrow.
If you paid 20% down and have a non-FHA loan, you might be eligible to waive escrow. But remember—you’ll be responsible for paying your taxes and insurance on your own, often in lump sums.
If your income is variable (e.g., self-employed), you may prefer managing large payments yourself. In that case, escrow might not be ideal.
🔔 Important: Your loan servicer can’t cancel your escrow unless you’ve made 12 consecutive on-time payments.
– FHA loans: Escrow always required
– VA loans: Often required; canceling requires at least 10% equity + good credit
– HPMLs: Escrow required for 5 years minimum
– Conventional loans: Lender’s discretion. If you paid ≥20%, you may waive escrow, often with a fee
Lenders may cancel escrow once you have 20–25% equity. But if you don’t pay your taxes or insurance on your own, escrow will be reinstated—and force-placed insurance can be more costly. 😬
Yes! 🎉 But only the portion actually paid for property taxes is deductible—not what you deposited into escrow. Consult your tax advisor for guidance.
You can find this info in your escrow analysis and IRS Form 1098 (Mortgage Interest Statement).
Hopefully you found some value in this article.
God Bless and reach out to us with any questions/comments.
